UPON FURTHER
REV EW
Once used only on niche projects, appraisal reviews have become a standard industry practice
By James
Sobiesczyk,
Appraisal
Institute
communications
specialist
AS THE APPRAISAL
PROFESSION CONTINUES
TO FACE RAPID CHANGE,
intense competition and height-
ened accountability, appraisal
review has become an increas-
ingly important function in the valuation process.
Reviewing appraisal reports has evolved into an
essential quality-control function and is becoming
an important part of the standard operating pro-
cedure for individual clients, financial institutions,
government agencies and companies of all sizes.
The appraisal review demystifies the appraisal
process and gives the client a better understanding of the valuation and greater confidence in the
appraiser’s conclusions. Ultimately, the purpose
of an appraisal review is to reinforce the client’s
confidence in the credibility of the appraisal and
the conclusions it presents.
To gain insight into the issues and challenges
facing reviewers, as well as how the review
practice has evolved, Valuation caught up with
several Appraisal Institute members from around
the country who are involved with reviews. Here,
they share their perspectives.
VALUE OF AN APPRAISAL REVIEW
Based on Appraisal Institute data, the estimated
number of reviewers in the U.S. is about 11,000 to
14,000; slightly more than half are employed by banks,
financial institutions and mortgage lenders, while
about one-third are employed by appraisal firms.
Whether an appraisal review is conducted within
an appraiser’s own firm or by a client, professional
association or government entity, the goal is to
ensure that credible, sound appraisals are communicated in logical, concise reports. The essence
of appraisal review is to investigate, analyze and
verify the logic and procedure used in an appraisal
and to ensure a sound value opinion.
William Pittenger, MAI, SRA, a former senior
vice president of Seacoast National Bank in Stuart,
Fla., depends on appraisal reviews to test the validity of an appraisal to make an informed judgment
about its reliability. In a banking environment,
that means deciding if the data, reasoning and
conclusions set forth in the appraisal report form
a sound basis for either underwriting new credit or
restructuring an existing loan.
“As most commercial real estate loans are
collateral-dependent, in the sense that the primary
source of loan repayment is the property’s ability
to produce revenue,” Pittenger says, “a reviewer
should check to see that characteristics about
the security property, as well as its competitive
marketplace that might limit its ability to produce
revenue to sufficiently operate and service the
debt, have been appropriately identified. If a prop-
erty cannot do both, loan repayment is in jeopardy
from the beginning.”
THE REVIEW PROCESS
Appraisal review is a highly technical process and
requires a thorough understanding of both valuation theory and practice. The primary function
of the appraisal reviewer is not to appraise the
subject property, but to examine the contents of
a report and form an opinion as to its adequacy
and appropriateness.
Reviewers are expected to conduct reviews
within recognized appraisal principles and practices
as outlined in the Uniform Standards of Professional
Appraisal Practice. It is important that reviewers
remain objective toward the appraisal under review,
even if the reviewer has a different opinion than
those stated in the report. When a reviewer makes
